Is this the year for an oil-to-gas conversion?

Is this the year for an oil-to-gas conversion?Nearly one-third of homes in Massachusetts use heating oil as their primary heating fuel. Historically, the price of heating oil has been hard to predict. For most of the 1990’s, each gallon of fuel oil cost about $1. In 1999, the price of heating oil began to rise significantly. It peaked in 2014 at more than $4 per gallon. Today, the price of a gallon of heating oil is about $3.25.

The variability of heating oil pricing is just one thing that homeowners consider when thinking about an oil-to-gas conversion. Convenience, the cost of conversion, availability and environmental concerns also factor into the decision to hold onto what you have or switch.

The most important consideration in oil-to-gas conversion

The cost of conversion is complex. It’s not simply about the sticker price of a new furnace. Initial costs are only one part of the lifetime costs of a furnace. In addition to your fixed costs, you also need to take into consideration the ongoing costs of operating the furnace.

For example, say a new 80% AFUE heating oil furnace costs $4,000 to purchase and install in an average-sized house. Homeowners paid an average of $1,700 to heat with oil in 2017-18, so we’ll assume an annual operating cost of $1,700. After 15 years, the homeowner will have paid $29,500 for heating with oil.

If the same homeowner installs a 90% efficient gas furnace instead, the expected install cost jumps to $6,000, but the annual operating costs drop to $900. After 15 years, the homeowner will have paid $19,500 for heating with gas. That’s a savings of $10,000 over heating oil.

Fifteen years is a generous lifetime for a high efficiency natural gas furnace. An oil furnaces can last for 30 years or more. So what happens when we calculate the cost of heating over 30 years – the life expectancy of the oil furnace? Keeping the fuel cost constant, the lifetime cost of each furnace looks like this.

The oil furnace, at $4,000, operated over 30 years will cost $55,000. The gas furnace – which gets replaced midway through the 30-year-cycle – will cost $39,570. This assumes that the initial furnace costs $6,000 and the replacement furnace costs $7,500. It also assumes that the second gas furnace takes advantage of technology to operate more efficiently, so the home’s gas consumption drops during the second 15 year-period to $850. Over the lifetime of an oil furnace, a natural gas alternative offers a savings of $15,430 (-28%) over 30 years.

The hidden cost of doing nothing

The example illustrates why keeping old technology might not be a good idea, even if it seemingly “costs nothing to do nothing.” An oil furnace built in 1990 may have been highly efficient by 1990’s standards. But technology improves over time, allowing newer furnaces to become more efficient. If you keep an inefficient furnace for 30 years, you keep that furnace’s inefficiency. You’ll end up paying a significantly higher operating cost for 10, 20 or even 30 years. As the example above shows, that can be a costly mistake.

The real cost consideration for a furnace is not the price tag of buying it and putting it in your home. The real question is how much does a furnace cost to operate over time? You’ll easily spend 2-13 times the furnace’s purchase price on operating costs over its lifetime. When operating efficiency determines the lifetime cost of a furnace, keeping an old, inefficient furnace simply doesn’t make financial sense.

The savings you’ll get from a natural gas replacement for an oil furnace can literally pay for the new furnace in just a few years. And if you set aside the money you’d have otherwise spent on running your older, inefficient oil furnace, you can use that cash to pay for a more efficient replacement gas furnace in 12-15 years. That allows you to continue reaping the benefits of lowered heating costs without having to finance the purchase of a new furnace.

If you’d like more information about oil-to-gas conversion, or you’d like to talk about replacing your older, less efficient furnace, call us at Boston Standard Plumbing and Heating at (617) 288-2911 to set up a consultation.

Photo Credit: Massachusetts Department of Environmental Protection, via Flickr